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Invest for growth rather than income

- Alan Lavine and Gail Liberman

Are you receiving periodic interest and dividend payments from your investments?

Big mistake, says Ron Muhlenkamp, author of Harvesting Profits on Wall Street (Muhlenkamp & Company Inc.). Reason: Inflation and income taxes can take too much of a bite.

Here's the average annual return between year-end 1925 and 2004, after taxes and inflation. Data, from Ibbotson Associates, Chicago, assume no capital gains taxes for municipal bonds and reinvestment of income.

  • Stocks: 4.8 percent.

  • Bonds: .6 percent.

  • U.S. Treasury bills: -.9 percent.

Better strategy: Invest in growth-oriented stocks or stock mutual funds, Muhlenkamp says. If you need money to live on, take regular withdrawals as needed.

This way, you'll only get hit with a maximum 15 percent capital gains tax.

Continue investing on an after-tax basis to grow more assets.

Periodically review and adjust your investments to reflect changes in the markets, tax laws and personal goals. Move extra assets to heirs or charities.


Spouses Gail Liberman and Alan Lavine are syndicated columnists. Their latest book is "Rags to Retirement (Alpha Books)." You can e-mail them at MWliblav@aol.com.

To read more columns, please visit the column archive.

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